Debt report: N.J. to have $419M less than expected over next 3 years

Rising interest rates have taken a $419 million bite out of the funding New Jersey expects to have available for highway and mass transit improvements over the next three years, the latest report on the state's public debt shows.

Instead of raising almost $4.1 billion for transportation improvements between now and June 2011, higher borrowing costs mean the state will be able to afford only $3.66 billion, according to the annual report by the Treasury Department.

Even with the scaled-back pace of borrowing, the entire $895 million in gasoline taxes and other revenues that are dedicated to transportation improvements each year will be consumed through 2041 by the cost of repaying funds borrowed for earlier years' projects, the report said.

Kate Slevin, executive director of the Tri-State Transportation Campaign, said the fact that interest costs are cutting into the state's ability to fund transportation improvements shows the flaws in New Jersey's decision to rely heavily on borrowed funds to bankroll its transportation program.

"It (debt) is a useful tool," she said. "But the way New Jersey does it means they're so far in debt it cripples what they can do."

James Petrino, deputy director of the state's Office of Public Finance, said tight credit markets have raised projected interest rates on the state's debt almost a full percentage point above where they stood when officials mapped out upcoming transportation spending in last year's debt report.

Since the state currently has a maximum of $895 million a year dedicated to the transportation bond payments, an increase in the amount needed for interest payments reduces the amount the state can borrow in the first place.

In hopes of getting more customers for the bonds and therefore a better interest rate, the state last week launched a website (buynjbonds.gov) and an advertising campaign to encourage residents to invest in New Jersey bonds. The first offering is a $750 million transportation bond issue to go on sale this week.

The debt report, presented to the state Commission on Capital Budgeting and Planning last week, shows the state will be able to borrow $1.4 billion in the current budget year for the Transportation Trust Fund, which finances road and transit projects. Last year the state had projected borrowing $1.5 billion for the program this year.

During the budget year that starts next July 1, the report shows, the state will be able to borrow only $1.3 billion, down from the $1.6 billion projected a year ago. And in 2011, the last year for which any borrowing capacity will be available, the state will be able to raise only $962 million through bonds, the report shows.

Assemblywoman Marcia Karrow (R-Hunterdon) said the shrinking budgets are a result of the state's over-reliance on borrowing.

"Capital project debt should be treated with kid gloves because it's children and grandchildren who are going to have to pay it," she said. "The fact we have indebted 5-year-olds for potholes that will be refilled 1,000 times before they are old enough to pay taxes is a taxpayer sin."

The diminished transportation budget was just one element of grim news in the annual tally of the state's indebtedness that was presented to the commission last week.

The report also showed the state's required payment into public employee retirement systems grew by about $1 billion between 2007 and 2008, reaching $4.7 billion.

And it showed the overall total of debt included in the report grew by $2.1 billion last year, reaching $31.86 billion.